Transcript

Welcome to the segment called Avoiding penalties and interest part of the Payroll Information for a New Small Business video.

I'm your host Janice Novak.

With me is Andrea Cohen who will share with us, in this segment, information that she has obtained from the CRA about avoiding penalties and interest.

Welcome Andrea. Can you tell me about some of the different types of penalties that an employer might be charged?

Subject matter expert: Thank you Janice. There are different types of penalties for different situations. An employer might be charged a penalty when a payment or remittance is late, when they fail to make deductions from employees, and when they fail to file an information return by the due date or distribute slips to recipients late.

Host: Let's start with the first penalty you mentioned, the late remittance penalty.

Subject matter expert: Janice, if an employer makes a payment or remittance late, the CRA might charge a penalty based on how late the payment is.

A graduated penalty is calculated as a percentage of the amount due, as follows:

• 3% if the amount is one to three days late;
• 5% if it is four or five days late;
• 7% if it is six or seven days late; and
• 10% if it is more than seven days late, or if no amount is remitted.

Generally, the CRA will subtract $500 from your payment to calculate the penalty.

However, if the payment was made late knowingly, or under circumstances amounting to gross negligence, the CRA will apply the penalty to the whole amount, and the CRA can charge a penalty of up to 20%.

Host: What happens if an employer fails to make deductions from employees? Is there a penalty then?

Subject matter expert: If an employer fails to make deductions from employees, the CRA can assess a penalty of 10% of the amount the employer failed to deduct.

If this is the second or later time, and the failure was done knowingly or under circumstances amounting to gross negligence, a penalty of 20% of the amount that should have been deducted can be assessed.

Host: You mentioned that a penalty may apply when an employer fails to file an information return by the due date or if T4 or T4A slips are issued late. What is the due date for filing information returns and for issuing slips?

Subject matter expert: You have to file the T4 or T4A information return and give the T4 or T4A slips to the recipients on or before the last day of February, following the calendar year to which the information return applies. If the last day of February is a Saturday or a Sunday, your information return is due the next business day.

So, the information returns and the T4/T4A slips have the same due date.

Host: What is the late filing penalty that can apply? And how is the penalty calculated?

Subject matter expert: The penalty for failing to file an information return by the due date can range from a minimum of $100 to a maximum of $7,500, depending on the number of returns.

For the complete penalty structure, go to www.cra.gc.ca/penaltyinformationreturns.

Host: Andrea, when does interest get applied?

Subject matter expert: Janice, if you fail to pay an amount, including a penalty, the CRA can apply interest from the day your payment was due.

Host: How often is the interest calculated?

Subject matter expert: Interest is compounded or recalculated daily, based on the annual rate.

Host: And what is the annual rate?

Subject matter expert: The interest rate the CRA uses is determined every three months, based on prescribed interest rates.

For more information on the CRA interest rates, go to www.cra.gc.ca and select "All rates".

Host: What's a good resource for more information?

Subject matter expert: For more details on late-filing information returns, go to the CRA webpage on Penalties, interest, and other consequences.

More information is also available in the following publications:

T4001, Employer's Guide – Payroll Deductions and Remittances, Chapter 1

RC4120, Employer's Guide – Filing the T4 Slip and Summary, Chapter 1

Host: Thank you Andrea.

This concludes the segment on Avoiding penalties and interest, part of the CRA's Payroll Information for a New Small Business video.

Thank you for watching.